U.S. employers added 288,000 jobs in June, according to the jobs report released Thursday. The unemployment rate fell to 6.1 percent, its lowest level since September 2008.
This was the fifth consecutive month that new jobs exceeded 200,000, the first such period since the late 1990s. As the economic recovery heads into its sixth year, evidence of a strengthening labor market raises hopes for annualized 3 percent-plus growth over the rest of 2014, after the first quarter’s sharp decline of 2.9 percent.
However, the U.S. economy has yet to record even one full year of 3 percent growth in the current recovery. In a world of lackluster economic growth, where can you find companies with new products or services that can generate much more rapid gains of revenues and earnings?
In our view, one of the first areas to look at should be companies that develop, produce and market new drugs and therapies that are life-saving and life-enhancing.
Many companies in the biotechnology/specialty pharmaceuticals industries are generating annual profit increases of 15-25 percent and more at a time when the other companies in the Standard & Poor’s 500 are struggling to grow 5 percent.
These bio/pharma companies are benefiting from increased drug approvals, new-product launches and promising pipelines. Over the next few years, we’re likely to see blockbuster products being approved for cancer, heart disease, hepatitis, diabetes, eye disease and more.
The Food and Drug Administration approved 39 drugs in 2012, the most in 16 years, and then another 27 in 2013. Much of the surge in new drug approvals stems from advances in “biologics.” These are manufactured from a living cell to create a complex mixture of molecules. A traditional prescription drug is typically made by combining chemical ingredients.
In the Feb. 26, 2014 issue of Personal Finance, I profiled 10! “Healthy Drug Stocks to Buy or Watch.” I advised: “As a group, the growth companies should continue to outperform the broad market over the next five years. Stock-price appreciation likely will be driven more by revenues, earnings and cash flow than the expansion of price/earnings (P/E) multiples.”
Following big gains, most of the stocks were expensive. Indeed, all 10 were trading above my recommended buy limits at the time of publication.
However, this reflected the fact that the stocks generally had run up in anticipation of earnings growth that was only just starting to accelerate. Those gains also made the stocks vulnerable to a price pullback in either the broad market or that sector. And that’s what happened over six weeks in March and April.
During that early-spring downturn, seven of the 10 stocks fell below the recommended buy limits specified in PF. Six of the seven now are higher than the buy limits. The three stocks that didn’t fall far enough now are higher than even their February levels.
Here are the details:
| 2/26/14 Price | Buy Advice | Low Price | 7/2/14 Price |
Alexion Pharma. (NSDQ: ALXN) | 182.57 | >146 | 136.37 | 164.22 |
Allergan (NYSE: AGN) | 127.25 | >114 | 115.94 | 170.55 |
Amg! en Inc. (! NSDQ: AMGN) | 123.68 | >118 | 109.41 | 121.03 |
Biogen Idec (NSDQ: BIIB) | 343.21 | >293 | 272.02 | 331.00 |
Celgene Corp. (NSDQ: CELG) | 79.99 | >78.75 | 66.85 | 90.07 |
Gilead Sciences (NSDQ: GILD) | 83.81 | >82 | 63.50 | 87.10 |
Novo Nordisk A/S (NYSE: NVO) | 46.26 | >39 | 42.08 | 46.43 |
Regeneron Pharma. (NSDQ: REGN) | 336.48 | >277 | 273.23 | 308.54 |
Shire plc (NSDQ: SHPG) | 168.81 | >140 | 141.66 | 237.23 |
Valeant Pharma. Int’l (NYSE: VRX) | >146 | 115.14 | 126.00 |
What’s more, earnings estimates for 2014 by Wall Street analysts have increased for seven of the 10 companies over the last three months. Amgen’s are down slightly and those for Celgene and Novo Nordisk are unchanged.
Two of the 10 stocks currently are in the PF Growth Portfolio. Another, Allergan, was sold for a 75 percent long-term gain since its initial recommendation.
As of late February, the 10 stocks profiled carried market capitalizations of roughly $30 billion and up. Here are another four companies to watch: Grifols SA (NSDQ: GRFS), Jazz Pharmaceuticals PLC (NSDQ: JAZZ), Questcor Pharmaceuticals (NSDQ: QCOR) and Salix Pharmaceuticals (NSDQ: SLXP). Each of these four companies is generating rapid revenue and profit growth, and each stock carries a market capitalization of $5 billion or more.
Have a happy and safe Fourth of July weekend!
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